An old trader's adage

“Never short a dull market” seems to be the phrase on most traders’ minds at the moment as this sideways movement is now in its 54th day within a 2% range.

Rio Tinto
Source: Bloomberg

Within Australia, our benchmark has traded in a 3.6% range for the past 40 days, and analysts are suggesting earning per share growth of between 13% and 19% for 2017.

Is this the quiet before the storm? The storm where price weakness prevails and lower levels in equity indices are searched for in a matter of days. Or the darkest moment before the dawn of a market pushing higher into new heights. These types of consolidations usually end badly for one side of the market: the short sellers are forced to close positions if the market breaks higher and the long positions are forced out if the market moves lower. With financials in the US down an average of 0.8%, the DOW 30 remains in the red while the S&P and Russell 2000 add to the standoff in market direction.

The US ten-year traded down 1.6% to 2.36 while the courts worked through Trump immigration orders. In a typical double-down approach, President Trump alluded that any future terror incidents will now be in the hands of US federal judges.

Rio Tinto (RIO) reported in London overnight with an earnings per share of $5.38, 320 million tons of iron ore shipped and 580,000 tons of copper produced - which China soaked up into the expanding infrastructure programs. It is interesting to note that RIO have worked to offload the coal assets but retained iron ore as the keeper, and are willing to expend this area of the business. A share buyback and dividend increase failed to impress the market, with the overnight ADR suggesting RIO will trade around $64.77 in the Aussie market today.

This is inline with other overnight ADR weakness, with BHP at $25.28, down from last trade of $25.74. Both RIO and BHP along with FMG are indicating a lower open today. The market is unwilling to take a lead from good production numbers, an increase in the dividend (RIO) and a higher iron ore price overnight.

Inline with current low volatility, there will be a mixed open, with the CBA ADR stronger at $82.55 from its last close of $82.35. Gold stocks are also set to benefit as gold traded over the key $1240.00 into this morning close. 

Overall the SPI futures are up three points, suggesting a flat open, but with the Aussie reporting season underway, this can move either way. Suncorp, AMP and AGL are reporting today, and REA reporting tomorrow will give some insight into the real estate sector in Australia. Reporting so far has had a benign affect on market sentiment, with all eyes on US policy development and its implications for the rest of the world.

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